Regulation and Deregulation

Regulation and Deregulation in the Western World

Morgan Duchesney 2000

The Bretton Woods Accord of the 1940s marked the first coordinated efforts of U.S. and European nations to regulate international economic and financial relations. These codified arrangements limited the mobility of capital by imposing significant trade tariffs and fixed currency rates. This international activity was mediated via individual nation states. The Bretton Woods accord, by limiting the mobility of capital, made money markets were more stable. This volatility was manifest in the stock market crash of 1929, and new government controls were sought in order to avoid future disasters. As with money markets, it was also the nation state that provided the regulatory measures for labour relations after the Second World War.

Regulation theory describes a mode of social regulation as the institutionalized patterns of a society which support the reproduction of a particular regimen of accumulation (Marshall, 1994; 444). Although variance exists in institutionalized patterns, according to regulation theory, two main modes of regulation were present in 20th century societies in the Western world: fordism and post-fordism. National accumulation, or the organization patterns of production and consumption (Marshall, 1994; 444) was characteristic of the earlier half of the 20th century. Governed by sovereign nation states, national accumulation was characterized by industrial relations that corresponded to nationally-based competition (Boyer, 2000, 291). As such, fordist production was characterized by mass production, full employment and higher wages for employees. Governments also had a high degree of direction and intervention regarding market activity.

The introduction of new norms and laws ensured labour force compliance to shifting industrial practices (Yaghmaian, 1998; 257). Also occurring during the early post-war period was a combined effort by several western countries, including Canada and Great Britain, to develop a mandate for post-war industrial direction. They sought to create financial policy that would ensure the avoidance of the economic disaster of the great Depression. This delegation sought policy that allowed for a greater state control over the regulation of capital. Two institutions emerged from the Bretton Woods project: The International Monetary Fund (IMF) and the World Bank (WB). These two bodies oversaw the regulation of currency exchange rates between western countries. Eventually, during the 1970s, increased competition from foreign markets necessitated changes in the Occidental world. In order for business to remain competitive on an increasingly international scale, norms and practices regarding labour and capital began to shift. The efforts of governments to regulate the industrial relations of the labour force, and the movement of capital underwent changes.

Deregulation, the ubiquitous buzzword in the West since the 1980s, is a bit of a misnomer because it implies a retreat on the part of governments regarding social regulation. On the contrary, during the post-fordist period, new regulatory measures have been implemented in order to facilitate the new focus of international business, and while the spatial location of capital has indeed experienced deregulation, there exist regulatory measures that ensure the continuation of the emerging regime of international accumulation. A new regulatory mechanism has displaced the old principles of the Keynesian welfare state; neoliberalism has effected obvious changes, especially in labour relations and the regulation of finance and welfare policy. During the latter half of this century, the Western world is still very much regulated!

Neoliberalism and the Old Social Contract

New international capitalist activity has necessitated the creation and implementation of regulatory measures that correspond to the new regime of global capitalist accumulation. During the Fordist era (approximately 1945 to 1973) national accumulation began to shift to international accumulation as non-Western countries, specifically Asian, began to produce and market goods that rivaled Western products in price, quality, and more importantly, variety. Due to the increased speed of telecommunications and the use of computers, the potential for business contacts and new markets began to expand.
The old post-war Keynesian welfare state, which underpinned the fordist regime of accumulation, was characterized by social policy that provided extensive benefits such as health care, education and income supplements (welfare). The Keynesian welfare state was implemented following WWII, and stressed policies that supported mass-production for a national market. Labour relations created a workforce that had habituated to the idea of stable, long-term employment. Under the old Keynesian social contract, governance of the population was related to the stabilization of the accumulation process (Tickell and Peck, 1995; 360). Social welfare and income security, and the redistribution of wealth (via taxes for instance) were the actions of social democratic governments who regulated individuals and the economy.

Regulatory Mechanisms

The “Fordist/Keynesian wage-earner state has been transformed into a lean Schumpeterian state in the sense that it seeks to encourage enterprise, foreign investment and innovation” (Boyer, 2000; 291-2). In contrast to the tenets of the social welfare state that governed Western post-fordist societies for three decades, neoliberalism is the new “regulatory mechanism (that governs) global accumulation” (Yaghmaian, 1998, 241). The deregulation of financial markets and the free movement of global capital are only possible through the direct manipulation and implementation of definite regulatory practices and measures. Neoliberal rhetoric is the ideological apparatus that endorses the policies necessary to the new regime of international capital accumulation, while institutional changes are promoted via neoliberal policy. Contrary to the protectionist measures of the post-fordist nation state, neoliberalism seeks to expand international trade, not protect national markets. The free movement of capital is essential to this goal of international accumulation. Fixed rates of currency exchange were abolished during the 1970s and speculations about a nation’s ability to compete became the determining factor in evaluating its currency rates. Volatility in money markets is increasing because investors speculate according to a nation’s debt and production factors. Along with this laissez-faire approach to international finance, neoliberalism is also expressed in a reduction in government spending, and the “growing acceptance of unemployment” (Shields and Evans, 1998; 66).

Post-Fordism, in contrast to the postwar era, is characterized by very different regulatory mechanisms and institutions. Stability and mass production belonged to an earlier era, whereas flexibility is the mainstay of post-fordism. Due to external competitive pressures, and increasing pressure from outside investors, western industry has had to reorient itself within an international arena. This has necessitated the need for a swift change in traditional Western values in order to support the new regime of international accumulation. The former Keynesian emphasis favoured collectives, or state ownership (e.g. unions to guarantee worker’s rights), whereas the current focus is on individuals and the privatization of state-run enterprise and service provisions. As governments divest themselves of social service responsibilities, more emphasis is placed on the individual to supply his or her own needs. Large national deficits deter potential investors and one way out of national deficits is the retrenchment of government support of social programs. Entreaties of restraint echo throughout the public and private sectors. All are encouraged to accept the concept and policies of the new lean state. The emergence and promotion of this neoliberal rhetoric supports the deregulation of financial markets and decreased bureaucracy by espousing the new regulatory measures of neoliberal economic and social policy.

The move from state-led to a market-driven economy, an “adaptation to the global economy” (Rhodes, 1999; 311), has also necessitated the deregulation of labour markets. Nation states are less involved in maintaining conditions designed to protect organized labour. In fact, during the last few decades, national governments have been instrumental in creating policy that weakens the power of organized labour. Governments have deregulated existing labour contracts and institutions that it once helped build after WWII, and this has allowed private business to mould and shape labour relations in an effort to provide the type of worker and industrial practices necessary to support a flexible global economy. Lifelong and full employment are barriers to the flexibility of labour that is necessary to today’s labour market. Contrasted to the rigid fordist model of mass production is the “supply side policies” (Teague, 1999; 38) of the new regime of international accumulation. Flexible labour relations are essential to facilitate the new market flexibility. This focus on flexibility is reflected in changes in wage arrangements and labour practices. According to Teague (1999; 38), past schemes of “centralized pay arrangements” and the bargaining rights of labour act as an impediment to new production practices; these practices must correspond to the “highly fluctuating patterns of demand” (Teague, 1999; 38) of the global market. Regarding the European Union and pay arrangements, Teague (1999; 39-41) also posits that, due to the necessity of implementing new (flexible) pay arrangements and systems, social concerns are no longer a priority. Large-scale wage policy, once influenced and directed centrally, is now determined on a much smaller scale. Industry now plays a greater deterministic role in wage arrangements. Businesses in the private sector have more influence in determining industrial wages (Teague, 1999; 40-41). The economic health of business is prioritized over the economic stability of the dependant wage earner. The neoliberal tenet of competitiveness has been instrumental in allowing and justifying this new relation between industry and labour. The deregulation of labour relations by western government legislation has allowed for greater private industrial control of this relation in determining the type of pay arrangements beneficial to its own corporate agenda.

Authors King and Wood explain that labour market deregulation by governments has allowed for new regulatory measures to be implemented by a sector which has gained its power by economic rather than democratic means. “Neoliberalism…promote(s) the cost competitiveness of domestic firms and a politically strategic framework to undermine the demographic and institutional bases of electoral opponents’ work” (King and Wood, 1999; 372). Political success is now increasingly dependent upon the economic success of domestic corporations. The result of this new policy creation has led to the attenuation of social democratic policy that had prioritized social equality and employment rights (King and Wood, 1999; 374). To gain a competitive edge in contemporary markets, business has pressured government into relinquishing policy that impedes competitiveness. Trade union arrangements, unemployment benefits and maternity leave are just some areas that have been influenced by private industry in the last few decades. Labour unions, for example, impede the competitiveness of private industry by maintaining higher wages and specified work hours for their members. Generous maternity leave and other employment benefits all contribute to increased production costs for firms. In order to flourish in an international setting, corporate autonomy must take precedence over the redistributional aims of government (King and Wood, 1999; 376). Neoliberalism has strongly touted competitiveness in order to justify the rescinding of labour rights. Previous labour practices, deregulated by governments, have now become very much regulated by policy that supports the aims of the private business sector. This promulgation of neoliberal ideology represents a shift in social policy, and this new social policy is congruent with the modern regime of advanced capitalist accumulation that is guided by the dictates of international markets.

Changing Welfare Policy

As previously discussed, the period between WWII and the 1970s saw domestic firms competing mainly for domestic markets. The goal of governments was to ensure a sustainable economy via full employment. Social security policy ensured the presence of social welfare and unemployment benefits for occasionally unemployed workers. However, as firms began to compete in an increasingly international market, the belief that greater competitiveness (viewed by investors as lower production costs) would create more jobs. A free market, as opposed to government-regulated markets, would ostensibly provide more employment. Traditional Keynesian welfare policy, linked to higher taxes, was seen as a “barrier to economic growth and development” (Grover and Stewart, 1999; 78). Traditional out-of-work employment and welfare benefits of the Keynesian welfare state began to disappear, with the rise of neoliberal policy, and market workfare, specifically in-work benefits, where benefits are contingent upon providing at least a minimum amount of work, is emerging. Because the renumeration for in-work benefits is lower than minimum wage, a form of lower wage employment is developing. According to Grover and Stewart (1999; 73), this strategy acts to further reduce the industrial wage “so that the market can respond by creating more low wage employment.” By furthering the free markets’ employment strategy of lowering employment costs, additional employment opportunities would supposedly arise as corporations gained a new competitive (profitable) edge. Ostensibly, add Grover and Stewart (1999; 78) under workfare, recipients are taught employment skills that enable them to perform in employment situations, thereby increasing their chances of employment. Workfare however, suggests Costello (in Grover and Stewart, 1999; 76) “depresse(s) wage levels by increasing the supply of potential employees who are under the threat of benefit withdrawal.” The creation of an “efficient and flexible labour market” (Grover and Stewart, 1999; 78) complements the current regime of accumulation. Neoliberal ideology decries old social democratic policy as being responsible for creating dependant citizens who have failed to develop efficient work habits. While the monitoring of workfare schemes may outweigh the cost of traditional benefit schemes, the regulatory intention nevertheless is to encourage social action that is congruent with a modern accumulation strategy.

According to Regulation Theory, each regime of accumulation requires a corresponding mode of social regulation to support it (Marshall, 1994; 444). Under a post-fordist system of accumulation, Keynesian social regulation is being superceded by the tenets of neoliberalism. This new ideological framework supports the changing agendas of post-fordist international accumulation. However, according to Tickell and Peck (1995; 365) “flexibility and its corollary, neo-liberalism”, represent a crisis in capitalist production, and therefore cannot be regarded as an emerging mode of social regulation. They further explain that a neoliberal model of social regulation fails as an adequate regulatory mode for several reasons: First, the social polarization that arises from the less equal re-distributive patterns of neoliberalism creates the possibility of either “disruptive collective action or social breakdown” (Tickell and Peck, 1995; 367). This is evidenced in social action such as that seen in Seattle and, more recently, at the FTAA summit in Quebec City, and also problems such as widespread unemployment. Additionally, the extreme volatility of financial markets presents tremendous instability that is difficult to reconcile. Lastly, surplus production between countries, for matters often as simple as geography and the varying existence of natural resources, is not equal. Surplus production, for areas or countries barely able maintain a subsistence level of production, is not viable (Tickell and Peck, 1995; 367). They argue, therefore, that neoliberalism is a response to the crisis of capitalism, that mere market regulation is not adequate for regulating capitalist production and accumulation. They view neoliberal practices as far too destructive to sustain social life and current methods of business practice. They conclude that for capitalist accumulation to remain viable, a new mode of social regulation must be implemented and “neo-liberalism (must be) defeated” (Tickell and Peck, 1995; 381).

Fordist production, which emphasized mass production for a national market, had as its foundation, the Keynesian welfare state as its mode of social regulation. As nation states began to respond to external pressures, these governments began to relinquish control over policy making to private industry. Private industry, in an effort to shift from mass to flexible production, began to effect changes in labour relations. These changes in labour relations necessitated changes in the social policies of the welfare state. According to Yaghmaian (1998; 253) “the regulatory requirements of fordist accumulation are institutionalized through the ascendancy of the precepts of the Keynesian welfare state,” whereas international accumulation is governed via “global neo-liberalism” (Yaghmaian, 1998; 253). However, as discussed previously, neoliberalism may not actually represent a new mode of social regulation. Therefore, the contemporary focus on deregulation may either represent a new form of neoliberal regulation that corresponds to changes in an accumulation regime, or, deregulation may be the result of a crisis in capitalist accumulation. Whether the deregulation of financial markets, labour laws, and shifting welfare policy are due to an emerging regime of accumulation or a crisis in an existing regime of accumulation, regulatory measures must exist in order to legitimize, sustain and reproduce the specific regime of accumulation. The current focus on the deregulation of past institutionalized practices represents an intentional human endeavour to legitimize and secure specific ends. The term deregulation can really be considered a synonym for the re-regulation of western society.

Works Cited:

Boyer, R. (2000) “The Political in the era of globalization and finance: Focus on
Some Régulation School research”, International Journal of Urban and Regional Research, 24, 1: 274-321.

Grover, C. and John Stewart. (1999) “Market Workfare: Social Security, Social Regulation and Competitiveness in the 1990s”, Journal of Social Policy, 28, 1: 73-96.

King, D. and Stewart Wood. (1999) “The Political Economy of Neoliberalism:Britain and the United States in the 1980s, Continuity and Change in Contemporary Capitalism, Herbert Kitschelt et al., Cambridge: Cambridge University Press.